Lackluster jobs report means Fed is likely to continue stimulus
10/22/2013 11:32 AM
10/24/2013 7:06 PM
A disappointing jobs report for September released by the government Tuesday points to an economy that was slowing even before the shock hit from a partial government shutdown and threat of a debt default. The Federal Reserve is now likely to keep its foot on the economy’s gas pedal.
Employers added a disappointing 148,000 jobs in September, the Labor Department said in a closely followed report that was more than two weeks late because of the government shutdown. The unemployment rate trickled down a touch, to 7.2 percent
Mainstream economists had expected as many as 180,000 new jobs last month, so the reported number was a letdown. But the Bureau of Labor Statistics also revised prior months’ numbers, and the 169,000 figure first reported in August was raised to 193,000.
The report suggested the economy was decelerating before the partial shutdown began Oct. 1, along with the threat of a voluntary default on U.S. bonds.
“The bad news is that the job market was soft even before the government shutdown and debt limit brinksmanship,” said Mark Zandi, the chief economist for forecaster Moody’s Analytics. “The good news is that if lawmakers don’t make significant changes to policy in the upcoming budget negotiations – and I don’t think they will – the fiscal drag will fade going into next year and job growth will re-accelerate.”
The drag he cited included a tax increase and federal spending cuts that kicked in earlier in the year.
The lackluster employment numbers mean the Federal Reserve is likely to maintain its purchases of $85 billion a month in government bonds to prop up the economy. It had hoped to start tapering off the stimulus as the economy picked up.
“The Fed will likely defer tapering until early in the first quarter of next year,” Jared Franz, an economist with investment giant T. Rowe Price, said in a note to investors.
“We suspect the consensus is rapidly moving to March 2014 as tapering start date,” added Neil Dutta, the director of research for Renaissance Macro Research. “The labor market picture will be muddled over the next two months because of survey issues from the shutdown, further reinforcing the case for a later taper date.”
While the headline numbers Tuesday weren’t impressive, there were important signs deep within the monthly report that the economy is healing, even if growth remains below historical trend lines.
Over the 12-month period that ended in September, a key measure that combines unemployment and underemployment has improved by six-tenths of a percentage point to 13.6 percent.
It means there are fewer people who are unable to find full-time jobs and are working part time, and fewer discouraged workers who are on the margins of the labor market. Less clear is why the numbers are improving.
“Is that decline really due to more hiring and hiring of the long-term unemployed or is it just the result of discouragement, (people) dropping out of the labor force?” asked Doug Handler, the chief U.S. economist for forecaster IHS Global Insight.
The private sector created 129,000 jobs in September, Tuesday’s report said, the average for the past three months. It’s a soft number for the world’s largest economy, and Jason Furman, the new head of the White House Council of Economic Advisers, said the average was “lower than we can be fully satisfied with, partially reflecting the effects of fiscal contraction.”
Beyond September, economists think the political turmoil around the shutdown and debt-ceiling fight dinged job growth in October, and they expect it to result in slower economic growth for the remainder of the year. Furman said this was apparent in the spike of first-time claims for unemployment and in sagging consumer confidence readings.
“We’re 120,000 fewer jobs than we otherwise would have had in the month of October,” Furman said, adding that the estimate was based on data through Oct. 12 and “those numbers could change and could potentially get worse.”
The October jobs report also has been delayed, with a release date set for Nov. 8, as statisticians try to make up for a lost half-month of data collection.
While the September jobs gains were disappointing, they did help knock down the unemployment rate from 7.3 percent to 7.2 percent, the lowest since December 2008. The rate of participation in the labor force stayed the same last month, meaning that the tick down in the jobless rate was due to more hiring, not to workers exiting the labor force. That was especially true for younger workers.
“One encouraging note is the sharp move lower in youth unemployment, where the unemployment rate for 16- to 19-year-olds has dropped from 23.7 percent in July to 21.4 percent in September, which has been driven by rising employment rather than falling participation,” economists John Ryding and Conrad DeQuadros, of RDQ Economics, said in an investment note Tuesday.
There were some positive signs within the mix of jobs created in September. The long-suffering construction sector added 20,000 jobs, and retailers added almost 21,000 workers ahead of the start of holiday hiring.
“The pace of growth in retail hires has slowed, similar to what the rest of the labor market is experiencing,” Jack Kleinhenz, the chief economist for the National Retail Federation, said in a statement. “Americans need to believe we are on a solid path out of this troubled economy and so far, they haven’t been given any reason to believe that.”
Professional and business services, a largely white-collar sector with higher salaries, saw an increase of 32,000 jobs, and temporary help services, often a harbinger of future hiring, rose by more than 20,000.
On the downside, however, leisure and hospitality was a job-losing sector in September, shedding 13,000 workers. That’s troubling, because this sector is sensitive to changes in spending by businesses, and the loss suggests that companies might be pulling back on employee travel.
The health care sector, always a job adder, grew by an anemic 6,800 positions, well below its trend. Manufacturing, a labor-intensive sector, saw employers add just 2,000 positions in September.
Lesley Clark contributed to this article.
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